India’s E-Commerce Industry: Untapped Market for Rooftop Solar
The e-commerce market in India is expected to surpass the U.S. to become the second largest globally
The Jawaharlal Nehru National Solar Mission (JNNSM) has a solar capacity installation goal of 100 GW by 2022. The target requires 40 GW to be installed using rooftop solar. Currently, only about 3.5 GW of the cumulative solar capacity has been installed through rooftop solar (RTS) installations. This indicates that almost 91% of the rooftop market is still undeveloped.
The commercial and industrial (C&I) segment is growing at a faster pace due to attractive solar tariffs as compared to retail power prices. However, even this segment has slowed down this year as installers have struggled to obtain financing. The 1 MW net metering cap has restricted rooftop growth. While educational institutions are an attractive rooftop solar market and corporate social responsibility funds can be tapped for RTS growth, the e-commerce sector can also be an attractive potential market for rooftop solar.
E-commerce: High Growth Rate Industry with Huge Potential for Rooftop Solar
The e-commerce industry in India is growing at a very fast pace. According to an India Brand Equity Foundation (IBEF) report, India’s e-commerce industry will surpass the U.S. to become the second largest e-commerce market in the world by 2034. The market in India is projected to grow four times to over $150 billion by 2022. Growth in e-commerce is typically accompanied by new warehouses that need considerable power to operate.
Mercom spoke to several industry officials who reiterated that the e-commerce market in India is slightly unorganized. According to industry sources, the average size of a warehouse is around 10,000 square feet. Load consumption is a primary factor in determining viability for a rooftop system. Warehouses with automation, air-conditioning, and cold storage are more energy-intensive than others. However, large e-commerce companies are including renewables in their corporate social responsibility and sustainability adoption plans.
According to the India Warehousing Market Report 2019, by Knight Frank, 68 million square meters was the estimated warehousing space requirement in India in 2019. The projected warehouse space requirement is expected to be 86 million square meters by 2024. According to the report, each state in India will have to develop its own logistics policy to promote the warehousing industry. States benefit from logistics growth as larger-scale warehouses will mean a higher percentage of tax collected by the State. The warehousing and logistics industry has gained infrastructure status from the government, which makes it eligible for relevant subsidies. The warehouse property market has also been receiving a lot of interest from institutional investors.
An Amazon India spokesperson told Mercom, “Amazon has a history of commitment to sustainability; through innovative packaging programs, our network of solar panels on the rooftop of our fulfillment centers, and numerous other initiatives. We are focused on inventing new ways to leverage our scale for the good of customers and the planet. Amazon’s initiatives in India, in line with its commitment to the environment, include installations of large-scale solar panel systems at eight fulfillment centers and two sortation centers. This investment will help Amazon India generate close to 10 million units of solar energy by the end of the year to support the annual energy needs of these buildings, reducing dependency on conventional sources of energy. These investments are part of Amazon’s long-term goal to power our global infrastructure using 100% renewable energy.”
“The impact of these initiatives includes large scale solar panels in 10 fulfillment and sorting centers, nearly 10 million units of solar energy to be generated this year, and installed solar panels at four Amazon Cares Community & Resource Centers (Part of Amazon’s CSR initiative). As part of our CSR program, Amazon has donated solar energy systems to 30 schools in Bhiwandi, Maharashtra,” the Amazon India spokesperson commented.
The e-commerce industry is still a small fraction of the rooftop space, accounting for approximately 1% to 2% of the total rooftop capacity installed in the country. In the future, e-commerce is expected to garner a bigger slice of the pie in terms of installed rooftop capacity.
“E-commerce has a lot of growth potential since warehouses tend to have large roofs. Earlier, the warehouses were leased, but as businesses grew, e-commerce players bought their own warehouse spaces. Leased warehouses were challenging since long term power purchase agreements (PPAs) were not workable. Since the sector is in growth mode, the market potential for rooftop in this segment is difficult to quantify,” said Andrew Hines, co-founder of CleanMax Solar.
“Economics of rooftop installations will be attractive to the e-commerce industry as it is to all C&I customers since warehouses will procure power based on commercial tariffs. While roof sizes are large, warehouses still tend to be low load consumption entities. Load consumptions vary. Large warehouses will have enough rooftop space for a 1 or 2 MW rooftop project. A large warehouse can accommodate a 1 MW rooftop solar, that would generate 1.5 million units a year. Consumption in the building depends on automation, cold storage, etc. Consumption will be three times that, like three to four million units per year. Some basic warehouses will have a low load consumption if they only store material.”
“However, e-commerce and logistics companies have become aware of rooftop installations. Large mature e-commerce companies are very energy-intensive. Even though they are aware of it, rooftop solar takes a backseat since nothing in their business will stop if they don’t adopt rooftop solar. Logistical, operational, and financial challenges will take priority over doing a rooftop solar project. This is a challenge, but overall, there is awareness,” added Andrew.
“Talking about renewable purchase obligations (RPO), the e-commerce players usually procure power from the utility on account of being low to average load consumers. Therefore, most of these companies are not RPO obligated entities. To be eligible to buy power through open access, they need to have load consumption of over 1 MW contract demand. These entities do not opt for captive power generation either. One MW contract demand is a necessity in RPO open access and power trading. Very few warehouses are RPO obligated,” Andrew said.
The market is largely distributed with solar capacities varying between 100 kW to 1 MW. Lenders are usually reluctant to lend to e-commerce companies for this reason. Typically, corporate clients prefer OPEX (operational expenses) or RESCO-based business models over CAPEX (capital expenses) due to cost considerations. Similarly, most e-commerce clients prefer OPEX. The e-commerce segment is relatively new, and many are not yet profitable. Lenders are still reluctant to provide financing to an e-commerce company. They will look at the credit profile, size of the e-commerce company, profitability, or if the company has a credible promoter or parent company; without this, financing can be a challenge.
“We target mainly the B2C (business to consumer) e-commerce industry, wherein the business is mainly done online; warehouses, fulfillment or distribution centers form the backbone for logistics and are the main areas of energy savings. At Fourth Partner, we are now designing solar systems that can be easily dismantled and reinstalled, if the client requires us to do so,” said Abhinanda Basu, Business Development Lead at Fourth Partner, Bengaluru.
“E-commerce players are aware of the RPO obligations but are facing challenges in implementing these requirements. Therefore, their pace of solarizing the e-commerce space has been slow. They are aware of the potential of rooftop solar and related business models. In the last few months, the progress of e-commerce players in the renewable space has been remarkable. Their average energy consumption varies between 25,000 to 1,50,000 units per month, depending on the type and size of the business. They have realized the cost-saving and commercial benefits of switching to solar, as well as the sustainability aspect, and are gradually moving towards it. From reducing heat loads in their facilities to getting direct benefits on their monthly energy expenses, the advantages have been tested, proven, and accepted. The awareness of the benefits of converting unused roof spaces to electricity-generating solar projects has now percolated. Most companies are now factoring in ‘feasibility of solar installations’ in their checklist,” said Abhinanda.
“Customer support warehouses, or warehouses which are close to customers (dark stores), have an average installed capacity of 100 kVA. The size of dark stores is around 17,000 square feet to 25,000 square feet. The monthly units consumed will be about 36,000 kWh. The mother warehouse (distribution center) has an average installed capacity of 300 kVA with an average size of 85,000 square feet to 150,000 square feet. The monthly average units consumed will be around 65,000 kWh. The average rate of ₹8 ($0.09)/kWh is the tariff, and the monthly electricity bill is around ₹0.52 million (~$7,554),” said Brahmaprakash, project head at New Facilities, Big Basket, India.
“The average load consumption of our cold storage facility in a customer support warehouse is around 15,000 kWh to 16,000 kWh per month. The mother warehouse consumes on an average 28,000 kWh to 30,000 kWh per month. According to government norms, we can install rooftop solar capacity equal to the electricity board’s sanctioned load. In some locations, we are not allowed to install 100% of the sanctioned load. Bangalore has been allowed to install 85% of the sanctioned load. The dark store warehouses can add around 100 kVA of rooftop solar while the mother warehouses with the average sanctioned load of 300 kVA have potential to add the same capacity of rooftop installations,” said Brahmaprakash.
“We are reducing carbon emission by consuming from solar and avoiding consumption from the grid. As of today, the total installed capacity of 1.2 MW has been completed. With this, we can reduce CO2 emission of 430 tons. To date, we have saved around ₹4.9 million (~$ 71,210) by adopting renewable energy at Big Basket. For rooftop solar, it is easy to find several players who will work on OPEX module,” said Brahmaprakash of Big Basket. The rooftop solar sector has still a long way to go in India compared to large-scale solar. E-commerce and warehousing industry is inclined to gradually shift towards adopting cleaner energy sources to power their facilities, with rooftop solar powering this transition. For rooftop installers, this is another market that has potential going forward.
“E-commerce companies should have a strong sustainability plan and start adopting solar right away – before consumers start demanding it. Going solar will have an immediate positive impact on the brands and show consumers that they care about the environment,” said Raj Prabhu, CEO of Mercom Capital Group.
Recently, the Ministry of New and Renewable Energy (MNRE) had put out new benchmark costs for grid-connected rooftop solar projects for the financial year (FY) 2019-20.
Image credit: U.S. Department of Energy from United States [Public domain]
Ramya Ranganath is an Associate Editor and Writer for Mercom Communications India. Before joining Mercom, Ramya worked as a Senior Editor at a digital media supply chain solutions company. Throughout her career, she has developed end-to-end content for various companies in a wide range of domains, including renewables. Ramya holds a bachelor’s degree in Mechanical Engineering from M.S. Ramaiah Institute of Technology and is passionate about environmental issues and permaculture.